This week was characterized by renewed volatility in the markets. This can partly be attributed to the diverging policies of the Federal Reserve and European Central Bank: the latter is just now instituting its form of monetary easing, while the former is set to conclude its stimulus program. After undulating, stocks ended the week up as gold retreated from its recent rally.
After a considerable period of record-low volatility, the markets oscillated throughout the week before the stock markets in the U.S. and Europe rallied on Thursday. Gold and silver were also volatile as strong seasonal demand is setting in. Just three months ago, market volatility was quietly stable, as the VIX volatility rating registered its lowest ever reading; after this week, the VIX has hit a 13-month high.
With the beginning of the European Central Bank’s asset purchase program coinciding with the end of the Fed’s own quantitative easing, the markets didn’t seem to know which way to go on Monday’s open. Germany’s DAX slipped 1.4%, the CAC 40 in Paris was 1.1% lower, and London’s FTSE 100 was down 0.7%. Meanwhile, the Nasdaq and S&P 500 rose 1.35% and 0.91%, respectively. Despite IBM plummeting nearly 8% on news that it will be contracting an outside company to manufacture all of its microchips, the Dow Jones still nudged into the green by 0.1%.
After plunging more than 150 points (-0.93%) on Wednesday, the Dow reverse in earnest on Thursday, rallying over 200 points. The S&P closed Thursday up 4.2% over the last week, peeking above the 1950 mark for the first time in two weeks. Yet, online retail giant Amazon saw its shares nosedive on Thursday after third quarter losses exceeding $400 million were reported. Meantime, its rival Alibaba and tech giant Microsoft saw continued strength, and Apple stock closed at a new all-time high of $104.83. European markets likewise saw a positive reversal around midweek: on the week, the CAC 40 was up 4.2%, the FTSE 100 rose by 2.4%, and the German DAX moved 3.8% into the green. After trending below the 15,000 mark, Japan’s Nikkei 225 gained some 5.2% on the week to open near 15,300 on Friday.
After dipping just below 85.0 earlier in the week, the DXY dollar spot index pushed back upward on Thursday, closing above 85.8. A rising dollar continued to drive commodity prices lower, especially energy prices. West Texas Intermediate fell to a 27-month low below $81/barrel, and Brent crude threatened to break below the $85 mark. Gas prices fell by as much as 25 cents in parts of the U.S. Gold and silver retreated with the strength of the greenback, as gold slid from its recent high of $1,250 to about $1,230. Silver was equally volatile, trading within a range between $17.20 and $17.50 during the week. U.S. Treasuries are still seeing reasonable demand, though the safe haven flight from earlier in the week has abated. The yield on the 10-year T-note sat at 2.25% on Friday's open.
A LOOK AHEAD: The big news next week comes on Wednesday, when the Federal Reserve Open Market Committee makes its post-meeting announcement. The end of the Fed's QE program of bond purchases is expected. Investors will also be closely watching the docket on Thursday when 3Q GDP and first-time jobless claims are released.